Precision Drilling announces that it has been awarded drilling contracts in both the Middle East and Mexico.
Precision Drilling also announces that it plans on increasing its 2014 capital spending budget by 23%.
Recent trend behavior signals a buying mode for both near-term traders and long-term investors.
When a potential investor looks to establish a long-term position in the oilfield services sector, a company's ability to win long-term contracts is certainly something to consider. With that said, I not only wanted to examine Precision Drilling's (NYSE:PDS) recent contract awards with regard to the Middle East and Mexico, but also note a number of reasons behind my decision to remain long on the company's stock.
Based in Calgary, Alberta, Canada, Precision Drilling Corporation is Canada's largest oilfield services company and one of the largest in the United States. Precision also has a growing presence internationally. Precision provides contract drilling, well servicing and strategic support services to customers. Precision supplies on-the-ground expertise - people, equipment and knowledge - to provide value to its customers on a daily basis.
Latest Drilling Contracts
On Monday March 24, not only did Precision Drilling announce a 23% increase in its 2014 capital spending budget, but also announced that the company had been awarded two key international contract awards. The first of these awards pertains to the Middle East as PDS was awarded a multi-year contract for a Super Triple new build ST-2000 drilling rig that is expected to be delivered late in Q4. The second of these awards pertains to Mexico as PDS announced that it has signed a multi-year contract for six drilling rigs (these six rigs include the re-contracting of three 3,000 horsepower rigs and the contracting, as part of a consortium, for three additional 1,000 horsepower rigs).
If PDS can meet or exceed the time table for delivery with regard to its Middle East contract, and demonstrate considerable growth in Mexico, there's a very good chance the company's long-term revenues could see a fair amount of growth with an average revenue growth rate of 3% or more per year over the next 3-5 years.
Recent Performance & Trend Behavior
On Monday, shares of PDS, which currently possess a market cap of $3.21 billion, a forward P/E ratio of 19.37, and an annual distribution yield of 1.92% ($0.22), settled at a price of $11.43/share.
Based on their closing price of $11.43/share, shares of PDS are trading 4.90% above their 20-day simple moving average, 15.10% above their 50-day simple moving average, and 17.69% above their 200-day simple moving average. It should be noted that these numbers indicate a moderate short-term and a solid mid-to-long term uptrend for the stock, which generally translates into a slight buying mode for most near-term traders and a stronger buying mode for most long-term investors.
Comparative Forward P/E Ratios Set Precision Drilling Apart From A Few Of Its Peers
Although the above referenced numbers indicate a long-term uptrend for the company's stock, I actually think its share price of $11.43/share offers investors a considerable point of entry. Why? Well, I think that shares are trading at a much better forward P/E ratio than a few of its sector-based peers which could translate into a great buying opportunity for many investors.
As of Monday's close, Precision's forward P/E ratio of 11.53 was much lower than the forward P/E ratio of both Basic Energy Service (NYSE:BAS) (forward P/E ratio of 34.25 as of 3/24) and RPC, Inc. (NYSE:RES) (forward P/E ratio of 16.34 as of 3/24) which were both considerably higher. A stronger forward P/E ratio clearly signals a greater level of affordability for Precision Drilling, especially when compared to the forward P/E ratio of several of its peers.
For those of you who may be considering a position in Precision Drilling, I strongly recommend keeping a close eye on the firm's recent trend performance, any further developments with regard to the two international contracts that were recently awarded in both the Middle East and Mexico and its ability to continue to enhance shareholder value over the next 12-24 months, as each of these factors could play a role in the company's long-term growth.
Disclosure: I am long PDS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.